Timing the Bottom of the Real Estate Market

Recently we have seen an abundance of economic news that has had a tendency to keep those considering the purchase or sale of real estate on the sidelines. We’ve seen continued gyrations in the stock and bond markets. We’ve seen a Federal Reserve that continues to chase the “snowball” downhill with rate cuts. Because they were late to take this kind of action, we’ll see more cuts still to come. We’ve seen mortgage rates on 30 year fixed rate loans fall to as low as 5% and spike to as high as 6.75% and now fluxuate in the midrange. We see a falling dollar, rising inflation and soaring commodity prices. We’re seeing fuel and energy prices squeeze all of us for what is left of our discretionary income. All of this news has a way of keeping many real estate investors paralyzed on the sidelines, as they contemplate investing in this market. “How low will it go?” they ponder.

Timing the market is difficult, if it’s even possible. In fact, I don’t think it is possible. Typically, when we know the market has changed, we don’t see that change until it has occured. For example, here in the greater Portland, Oregon area, our market changed in August of 2007. We didn’t see real evidence of that change until November of 2007. Certainly the market was slowing earlier in the year, but there was clearly momentum there that really disappeared in the fall and has never really returned. At some point this current market will change and most likely it will happen in an unannounced and swift manner. The market will in fact form a bottom and then rise. The motivation and flexibility that sellers afford buyers today will be long gone, and real estate will regain its good name as being the best long-term investment available in the U.S.A.

Selling Your Home in a Buyers Market

Ask just about any seller of a home available currently in the Portland Oregon housing market, things are tough! It use to be 2-3 showings a weeks was average. Now, if you get that many in a month you’re lucky!

So how does a seller get leverage and move closer to that offer and sale? In addition to the standard items like “price it right” from the beginning, and make sure your Realtor has a comprehensive Marketing Plan, here are a number of important factors to consider:

1. Recognize the fact that every market is different. The state you live in, town or even neighborhood could see homes selling at the same pace as todays national averages, or it could be bucking that trend entirely. Real estate markets are always local. In any given town there can be neighborhoods where you can’t seem to give your home away and there can be others where homes still sell as fact as they come on the market. Talk to a good real estate Broker as well as doing some research on your own.
2. Get your home inspected. The idea here is to be different, to be creative and to be proactive. When you do get an offer, the potential buyer will be doing a home inspection anyway so what ever is discovered will come up there anyway. When you know the issues with your home early in the process, you can fix them and as a result make it clear to any interested buy of your home that in fact, this is really a great home! When there are so many homes on the market like there are today in the Portland Oregon market, any leverage you can give yourself is good leverage!
3. Shape up before marketing. A buyer’s market means you have competition. You want to have your best foot forward and make certian you are the prettiest girl at the dance so you get picked. If your home isn’t appealing and in good repair, potential buyers won’t even stop. Sometimes a seller will feel it’s alright to skip this step, feeling “we’ll simply take less”, but if your home is not appealing, you may not even get the opportunity to negotiate. Simple ways to make your home stand out:
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     • New paint. Paint the whole house if it needs it or simply just the trim, shutters or doors. You’re looking for a fresh look here.
     • A clean entryway. Sweep or pressure wash the front walk or porch. Polish the outdoor metal work, wash windows, replace burned out bulds and add fresh, colorful flowers.
     • Landscape. Sharp edges on your grass, new bright red bark, beautiful flower beds, all make a huge difference!.
4. Devise a marketing plan. Obviously I’m a strong advocate of using an experienced, professional Realtor to market your important asset. In a sellers market, it can be easier to save the expense of paying a commission. But in a buyer’s market, or any rapidly changing market it can be a big help having a little professional expertise to price, market and sell your property. Don’t forget, potential buyers may think that if there is no agent involved, the price should already be 6% less. Both thebuyer and seller can’t save the same 6%.
5. Set a valid price. In a soft market, the rules change. Don’t overprice your home 10-20% thinking you are leaving room to negotiate. That strategy is never a good idea but in todays market it’s fatal. Being too high will simply eliminate your showings, and in todays market, its important to get all the showings you can. I tell my sellers that what we want is an offer! Even if it real low, it’s better to have an offer we can say NO to rather than no offer at all. Picking a price point is important. If your home is worth $300,000 be very carful if you want to price it at $310,000, thinking you have negotiating room. By doing this you are possibly eliminating all of the people doing computer searches up to $300,000. Instead, price it at $299,900 and be ok seeing an offer at $270,000. Remember, this is something you can counter or say “no” altogether. The idea here is to get in the game!
6. Understand your price. While you don’t want to undervalue your home, many sellers today will not see the kinds of prices thier neighbors did in 2005 and 2006.  If you have your heart set on a price and find out that homes aren’t selling for that, you may simply need to change your mind  and simply not sell right now.
7. Get rid of junk. Simply clear out the clutter. Buyers are much more fussy today and it easy to see why. There are simply a lot of homes out there for them to choose from. You’re moving anyway. This is a good time for that garage sale, or maybe even simply throwing things out. Maybe you shoupld rent a POD or storage locker. Buyers look for space and light. Make your home look like a show piece and you will be surprised at the result!
8. Stay on top of the market. Be aware of changes in the market. Know what’s going on in the world of mortgages and finance rates. Keep your eye on your comps no less than monthly and don’t be left behind. A good Broker representing you will provide this information, and remember, a good broker can’t make the market, they can only interpret the market

Oregon Foreclosure Rate

Every day that goes by we continue to see signs of a “normal” Portland area real estate market. In talking with a client of mine who lives in San Jose California, the perception is that just about every home on the market there is in foreclosure. Prices have dropped dramatically in that region and once again homes are nearing a range of affordability. Another client who has recently moved to the Portland area and had planned to buy a home, will now have to wait a few years to realize that dream. He just lost his home to foreclosure, in the southern California market. Similar homes to his, in his neighborhood, were selling for up to $300,000 less than what he paid for his in 2005.

The bright spot for Portland Oregon is that we are enjoying the 3rd lowest level of foreclosures in the nation as reported in last Sunday’s Oregonian newspaper. Probably lots of things have contributed to that which I won’t go into here, but suffice it to say, we are very fortunate! Many of us who have lived in our homes for a long time however may not fully realize that a “foreclosure” problem in our area will greatly hurt more than simply those who are losing their homes. Even though we, without the problem will not be losing our homes, when a home forecloses in our neighborhood, that now becomes a “comparable” which can have the affect of lowering the value of our home. Is a Government bailout necessary? Again, that’s another topic that may create a heated debate so we won’t go there now. I will toss out a question however, and this should not be interpreted as my recommendation to the solution, but what if: homeowners contributed a fixed amount toward a remedy which stopped in some fashion 90% of “sub-prime” related foreclosures. Lets say that number was $2,000 (which I have no basis for and is completely pulled out of the air). Might that be better than seeing the value of our home dropping $80,000 because 3 homes in our neighborhood have foreclosed, setting a new standard for pricing? Again, that is just a “what if” and not a solution.

At the end of the day, in Portland Oregon, Beaverton Oregon, and other suburbs in the area, the market is stable, healthy and it’s a good time to buy if that is your dream.

2007 Home Sales Fifth Best In History

Everywhere we seem to turn there is bad news about the housing market. Whether it’s your local newspaper or the evening news on television, we seem to be getting the same message presented to us daily. However, the 2007 market was the better than you may have thought it was and was in fact the 5th best in history when we look back. 2007 actually saw about 5.5 million homes trading owners with an average sales price of $224,500, which is an approximate 1.5% price increase over 2006 according the the National Association of Realtors. While real estate markets are always local, the fact that there is a positive increase should be viewed as aood appreciation.

Some good news to consider is that the housing market is relative. That is, when you buy or sell is relative. When most people sell, they are also turning right around and buying because they need a place to live. If you are selling in a low market you are also probably buying in a low market. I’m telling most of my clients that this is a poor time to sell thier home but it is in fact a great time to buy. If a person feels they are giving up too much in the sale of thier home, they will make that up when they turn around and buy.

When you are making that purchase or sell decision make sure you are properly represented by an experienced and qualified Realtor. This is a good market to buy a home and a competent Realtor will help you navigate properly thru the current maze.

The Media and the Real Estate Market

It seems I often find myself in conversations where someone is pointing at the media claiming they are the cause of the real estate slow down. Clearly that is not the case as they are simply reporting information about the various down markets country. The cause of the slow down comes as a natural response to what seemed to be an unbelievable run up in various markets. This run up was enhanced by uncontrolled use of things like sub-prime mortgages, stated income loans, option ARMs and numerous financing instruments which seemed to be available to just about anyone with a desire to purchase a home.

While the cause came partially as a result of what I describe above, we are seeing an effect from the continual reports from the news media that the market is in turmoil. The market in the Portland Oregon area, while frustrating at times, is very healthy when compared to the rest of the country. Latest market statistics show the average sales price in Portland increased 6.3% in 2007 from $322,600 to $342,900, pretty respectable for a housing market in turmoil. It seems however that I continually get questions from people who expect me to respond with just how bad the real estate market is. Today for example while holding a listing of mine in the Tualatin area I had a visitor ask me questions such as: ” How many people have been thru your Open House today?” and ” what is your view of the down market?” This persons motivation for asking these questions was she was preparing to put her own home on the market and just knew this is the wrong time to be doing it. The bottom line, if your home shows well and is priced right, it will sell. This however may not be the case in Las Vegas Nevada and Naples Florida. This visitor to my Open House had a jaded view of real estate, caused by watching the national news at night.

Just how bad is the US housing market? Here are a few data points we don’t tend to see on the 6 o’clock news:

Existing Home Sales (# homes sold in US, Source: NAR)

1998 - 4.2M
2000 - 4.6M
2004 - 4.7M
2005 - 7.1M
2006 - 6.48M
2007 - 5.66M
2008 - 5.7M (forecast)

Hardly numbers associated with a market where “nothing is selling”. Now don’t get me wrong, my phone does not ring like it use to. November and December of 2007 were also uncomfortably slow for me, but here in early January, this market is showing signs of life.

Escrow Deposits

As the housing bubble built over past few years, many buyers found themselves caught up in the excitement of buying new construction with the wish of seeing thier net worth grow over night. My own experience of working with buyers here in the Portland real estate market has been facinating as I saw people who obviously profited well as they speculated with real estate.

I’ve shown condo’s in Portland’s Pearl District where the building had been complete for at least a year, yet the condo I was showing the client had never been lived in. When pulling up the tax record for the unit, I would discover that the owner actually live in Arizona or California. Further researching the history I would discover the seller paid anywhere from $80k to $150k less than the current asking price for the unit they were selling. I had a client about 2 years ago who had purchased a condo in Naples Florida while under construction then made a cool $100k on it when it was complete. Given the current state of the Naples market, I’m certain they are happy they don’t own that condo today!

This article: Levitt & Sons’ bankruptcy kills retirement dreams for many Baby Boomers discusses a situation where people have lost deposits where the builder ran into problems and as a result went bankrupt with the buyers deposit. This is a great example where having a competent, third party Realtor represent you in a transaction with a builder is very important. If there has ever been a one sided contract, it can be found when negotiating with a builder for new construction. There are many pitfalls to these contracts that the buyer should be aware of. The buyer will often experience a superficial explaination of these agreements and the result can have significant consequence to the buyer. I won’t go into all of this detail here, other than to say, be careful and get representation! However, the one area the buyer should strive for is to see that all monies provided to the builder, be held in a neutral escrow account. This way if that builder goes bankrupt, your money will be safe. Now, there are times where the money will need to be released to the builder. Typically that is with the addition of non-standard upgrades selected during the construction process. Many builders will require that money to be released to him/her. However NEVER agree to a non-refundable release of escrow monies simply because that is the builders policy! If this requirement cannot be removed, and if there is ANY concern over the builders liquidity, then you need to walk away from this deal and look for another one. Protect yourself and your hard earned money!

Beautiful Traditional in Beaverton!

This dramatic, custom built home is located in the sought after Burntwood neighborhood in south Beaverton! The address of this beauty is 6754 SW 162nd Drive. The easiest way to get there is to go west on Hart from Murray, turn right on 160th then left on 162nd drive. The home is nicely appointed with 3 large Bedrooms, Den on the main floor and large Bonus Room over the garage.

The Kitchen is fantastic and is the gourmet cooks dream! Amenities in this room are granite counters, stainless appliances, abundant cabinet space and hardwood floors! The Formal Living and Dining Rooms are also very large and are perfect for entertaining or family gatherings. The romantic Master Suite is a feature here you should pay close attention to. Large room, gas fireplace and giant Master Bath with his and hers walk-in closets are only the beginning. As well the Master Bath includes separate his and her sink vanities, jetted tub, and separate shower.

The back yard is perfectly set for entertaining with it’s 2 decks, large hot tub and beautiful water feature!

This is a fantastic opportunity offered at $489,900! Call Steve today at 503-780-7599 or on the web at www.SteveSchwabGroup.com

 

Absorption Rate

There are many issues to consider as you head down the sometimes confusing path of putting your home on the market. Yes, items like price, condition, location, agent qualifications and plan to market are important items to consider. However there is one data point that should be understood so you can gain some level of understand as to how long you might be on the market. That data point is is “Absorption Rate”.

What is an Absorption Rate? This is simply an analysis that tells us how many homes are absorbed by the market on a monthly basis. This process will tell you exactly how much time it will take for the current real estate market to absorb your home. There are other data points which are important to consider, such as months of inventory. For example, in the greater Portland Oregon market, there was 6.2 months on inventory available in the month of August 2007. That means that if no more new listings came to the market at that point, in 6.2 months all listed homes would be sold. This is what is known as a balanced market and is neither a buyers or sellers market. Some sellers may feel different based on the activity they are seeing on thier home but these are the facts.

To further explain an absortion rate lets look at the Beaverton Oregon area of Washington County. We’ll use Beaverton High School, a price point of $450,000 to $500,000, bedrooms 3 or more, and homes built after 1995.

First, 100 homes in this criteria sold and closed in the past 12 months.

Second, we calculate an absorption rate by dividing the number of homes that sold in the past 12 months by 12. In our example the math works like this: 100/12 = 8.33 absorption rate.

Third, we search available listings and find there are 76 homes available for sale at this moment.

Fourth, we divide the number of available homes by the absorption rate. In our example that is 76/8.33(AR) = 9.12 months supply.  This simply means there are 9.12 months supply of homes in the Beaverton High School area priced between $450,000 and $500,000, 3 bedrooms or more and built after 1995. Remember, the Portland Oregon RMLS statistic says there is 6.2 months of available inventory. However, when we analyze things a little deeper we find that this specific market segment may not enjoy a 6.2 month sales cycle.

 Remember, there are many ways to segment the market to make this an interesting and useful data point to consider when setting your price. The key element is to NOT over price your home, especially in this market. A home that is clean, fresh, price correctly and marketed well will sell in a shorter time, netting the seller more money. If your real estate agent is not using this tool to explain the market activity to you, you may want to consider interviewing another agent.

For more on this or to find out the absorption rate for homes like yours, visit www.SteveSchwabGroup.com or email Steve at Steve@SteveSchwabGroup.com.

Residential REVIEW: Metro Portland, Oregon

August Residential Highlights

The market continues to follow the trends of recent months. While new listings continue to grow, the number of transactions are down. However, home prices continue to rise at a steady rate. The number of new listings in August grew 9.1% compared to August of 2006. On the other hand, pending sales dropped 18.1% and closed sales fell 13.1%. At the end of August 2007, there were 15,782 active residential listings in the Portland Metro area. Given the month’s rate of sales they would last 6.2 months

Year-to-Date Trends

When comparing the period of January 2007-August 2007 to the same period in 2006, new listings have grown 11.8%. Pending sales fell 11.7% and closed sales decreased 8.1%.

Appreciation

Using the average and median sale prices for the twelve months that ended with August 2007 compared to the twelve months ending in August 2006, the average sale price appreciated 7.8% ($337,400 v. $313,000). Using the same formula, the median sale price appreciated 8.1% ($285,000 v. $263,700).

Great One Level on Cul-D-Sac

I just listed another great property located at 8110 SW Carmel Court in Portland! This is a wonderful little home, fully constructed in brick! The Big Bad Wolf won’t be blowing this home down!

The neighborhood this home is located in is an absolutly great, SW Portland location! Very near the Red Tail Golf course, this home will attract many different types of buyers. A few of those looking for a home like this would naturally be that First Time Home Buyer who wants a real opportunity to build quick and realistic equity! As well, the older or retired person who’s kids have now left home, and are looking to downsize, will probably scoop this property right up!

A few of the ammenities include:

• 1580 Square Feet
• Single level living
• All brick construction
• Tile roof
• 3 Bedrooms and 2 Bathrooms
• Formal Living Room with fireplace
• Family Room with wood stove
• Storm windows
• Hardwoods under carpet
• Newer Furnace and A/C
• Newer Paver Driveway
• Great Schools
• And quiet cul-d-sac living!

 If you would like further information, visit: www.SteveSchwabGroup.com